When revenues exceed expenditures, governments enjoy a budget surplus. Surpluses & Deficits When revenues exceed expenditures, governments enjoy a budget surplus. Surplus = Revenues > Expenditures If revenues are less than expenditures, governments are faced with a budget deficit. Deficit = Revenues < Expenditures VS 3

Deficits & Debt When the Government has a Deficit, they then have to borrow money to meet expenditures. This borrowing is called debt. National Deficit: the amount government spending exceeds revenues in a fiscal year. National Debt: total amount borrowed from investors to finance the government’s deficit spending for current and previous years. VS 3

Impact of the National Debt (cont.) The national debt, although mostly owed to ourselves, still affects the economy by Transferring purchasing power from private sector to public sector Reducing economic incentives Causing a crowding-out effect Redistributing income Two Views of the National Debt Section 3

Concern over deficit spending led to attempts to control it. Congress mandated a balanced budget. “Pay-as-you-go” provision Line-item veto and spending caps Raising revenues Reduced spending—difficult because of entitlements So far nothing has worked at balancing the budget Section 3